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01

BASIC CONSIDERATIONS IN MAS

RHAD VIC F. ESTOQUE, CPA, MBA, CAT, MICB, RCA, CMA

Basic Considerations in
Management Advisory Services
RHAD VIC F. ESTOQUE, CPA MBA, CAT, MICB, RCA, CMA

I. OVERVIEW
MANAGEMENT ADVISORY SERVICES DEFINED:
Management advisory services refer to the function of providing professional advisory (consulting) services, the
primary purpose of which is to improve the client’s use of its capabilities and resources to achieve the objectives
of the organization.

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II. STRATEGIC DECISIONS AND MANAGEMENT ACCOUNTING

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Key to a company’s success in creating value for customers while differentiating itself from its competitors

A. Mission vs Vision

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A Mission Statement defines the company’s business, its objectives and its approach to reach those objectives. A
Vision Statement describes the desired future position of the company.

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B. Providing information about the sources of competitive advantage
Michael Porter’s Three Generic Strategies
1. Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable
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products and services) and "Focus" (offering a specialized service in a niche market). He then subdivided the
Focus strategy into two parts: "Cost Focus" and "Differentiation Focus."
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2. Role of management accountant: provide managers information in helping formulate strategy

C. Identifying and building resources and capabilities

1. Strategic analysis: matching knowledge of marketplace opportunities and threats with company’s resources and
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capabilities
2. Balance sheet information about assets
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a. Current resources
i. Cash adequacy
ii. Inventory management
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b. Long-term productive assets: important strategic decisions for the right investments
i. Analyze trends and measure efficiencies
ii. Develop network of relationships with customers and suppliers
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iii. Identify financial and nonfinancial costs and benefits associated with alternative choices
c. Intangible assets

III. MANAGEMENT ACCOUNTANT’S ROLE IN IMPLEMENTING STRATEGY

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A. Implementing strategy: managers taking action by using planning and control systems to help the collective
decisions of an organization
1. Planning
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a. Thinking process
i. Selecting organization goals
ii. Predicting results under various alternatives of achieving those goals
iii. Deciding how to attain desired goals
b. Communicating goals and how to attain them to entire organization

2. Control
a. Taking actions to implement the planning decisions
b. Deciding on performance evaluation

3. Feedback: linking planning and control to help future decision making

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BASIC CONSIDERATIONS IN MAS

B. Supporting managers by providing information to improve strategic, planning, and control decisions
1. Three roles of management accountants for success
a. Problem solving: comparative analysis for decision making
b. Scorekeeping: accumulating data and reporting reliable results
c. Attention directing: helping managers properly focus their attention

2. Goals to assist managers in making better decisions

a. Different decisions emphasize roles differently
i. Strategy and planning emphasize problem solving
ii. Control emphasizes scorekeeping and attention directing

b. Interaction among types of decisions means activity/roles done simultaneously

c. Information must be relevant and timely to be useful

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C. Enhancing the value of management accounting systems by guiding managers to focus on challenges
1. Customer focus
2. Value-chain and supply-chain analysis

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a. Companies add value through—
i. Research and development

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ii. Design of products, services, or processes
iii. Production
iv. Marketing
v. Distribution
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vi. Customer service
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b. Managers in all business functions are customers of management accounting information

3. Key success factors

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a. Cost and efficiency

b. Quality
c. Time
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d. Innovation
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4. Continuous improvement and benchmarking

IV. MANAGERIAL ACCOUNTING VS. FINANCIAL ACCOUNTING

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Seven key differences between managerial accounting and financial accounting as noted by IMA
Financial reports are for external users. Managerial accounting reports are for internal users.
Financial accounting summarizes past transactions. Managerial accounting has a strong emphasis on the future.
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Financial accounting data should be objective and verifiable. Managerial accounting data should be relevant.
Financial accounting focuses on precision. Managerial accounting focuses on timeliness of information.
Financial accounting is concerned with reporting for a company as a whole. Managerial accounting focuses on segments
of a company such as product lines, sales territories, divisions, and departments.
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Financial accounting must conform to generally accepted accounting principles (GAAP). Managerial accounting is not
bound by GAAP.
Financial accounting is mandatory, Managerial accounting is not.

V. TREASURERSHIP VS. CONTROLLERSHIP FUNCTIONS

1. Provision of Capital 1. Planning and control
2. Investor relation 2. Reporting and interpreting
3. Short-term financing 3. Evaluating and consulting
4. Banking and custody 4. Tax administration
5. Credits and collection 5. Government reporting
6. Investments 6. Protection of assets
7. Insurance 7. Economic appraisal

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BASIC CONSIDERATIONS IN MAS

VI. ETHICAL STANDARDS IN MAS

The Code of Ethics in effect in the Philippines automatically covers all managerial accountants practicing in the Philippines.
In addition to that is the come of ethics developed by IMA. Members of IMA shall behave ethically. A commitment to ethical
professional practice includes overarching principles that express our values, and standards that guide our conduct.
PRINCIPLES
IMA's overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. Members shall act in
accordance with these principles and shall encourage others within their organizations to adhere to them.

STANDARDS
A member's failure to comply with the following standards may result in disciplinary action.

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I. COMPETENCE
Each member has a responsibility to:

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1. Maintain an appropriate level of professional expertise by continually developing knowledge and skills.
2. Perform professional duties in accordance with relevant laws, regulations, and technical

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standards.
3. Provide decision support information and recommendations that are accurate, clear, concise, and timely.

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4. Recognize and communicate professional limitations or other constraints that would preclude
responsible judgment or successful performance of an activity.
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II. CONFIDENTIALITY
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Each member has a responsibility to:
1. Keep information confidential except when disclosure is authorized or legally required.
2. Inform all relevant parties regarding appropriate use of confidential information. Monitor
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subordinates' activities to ensure compliance.

3. Refrain from using confidential information for unethical or illegal advantage.
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III. INTEGRITY
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Each member has a responsibility to:

1. Mitigate actual conflicts of interest, regularly communicate with business associates to avoid
apparent conflicts of interest. Advise all parties of any potential conflicts.
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2. Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that might discredit the profession.
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IV. CREDIBILITY
Each member has a responsibility to:
1. Communicate information fairly and objectively.
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2. Disclose all relevant information that could reasonably be expected to influence an intended
user's understanding of the reports, analyses, or recommendations.
3. Disclose delays or deficiencies in information, timeliness, processing, or internal controls in
conformance with organization policy and/or applicable law.

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BASIC CONSIDERATIONS IN MAS

RESOLUTION OF ETHICAL CONFLICT

In applying the Standards of Ethical Professional Practice, you may encounter problems identifying unethical behavior or
resolving an ethical conflict. When faced with ethical issues, you should follow your organization's established policies on
the resolution of such conflict. If these policies do not resolve the ethical conflict, you should consider the following courses
of action:
1. Discuss the issue with your immediate supervisor except when it appears that the supervisor is involved. In that case,
present the issue to the next level. If you cannot achieve a satisfactory resolution, submit the issue to the next
management level. If your immediate superior is the chief executive officer or equivalent, the acceptable reviewing
authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or
owners. Contact with levels above the immediate superior should be initiated only with your superior's knowledge,
assuming he or she is not involved. Communication of such problems to authorities or individuals not employed or
engaged by the organization is not considered appropriate, unless you believe there is a clear violation of the law.
2. Clarify relevant ethical issues by initiating a confidential discussion with an IMA Ethics Counselor or other impartial

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advisor to obtain a better understanding of possible courses of action.
3. Consult your own attorney as to legal obligations and rights concerning the ethical conflict.

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Exercises
1. The primary purpose of management advisory services is

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a. To conduct special studies, preparation of recommendation, development of plans and programs, and
provisions of advice and assistance in their implementation

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b. To provide service or to fulfill some social need
c. To improve the client's use of its capabilities and resources to achieve the objective of the organization
d. To earn the best rate or return on resources entrusted to its care with safety of investment being taken into
account and consistent with the firm's social and legal responsibilities
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2. That kind of accounting concerned with providing information to management in making decisions about the
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operations of the business
a. Responsibility accounting
b. Cost accounting
c. Management accounting
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d. Financial accounting

3. Which of the following is not a characteristic of MAS?

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a. MAS is broad in scope

b. MAS involves problem-solving affecting the future operations of the client
c. Beneficiary of service is management
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d. MAS is repetitive as far as the same client is concerned

4. The following characterize management advisory services except

a. Involve decision for the future
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b. Broader in scope and varied in nature

c .Utilize more junior staff than senior members of the firm
d. Relate to specific problems where expert help is required
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5. Management accounting
a. Is governed by GAAP
b. Draws from disciplines other than accounting
c. Is geared primarily to the past rather than the future
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d. Places more emphasis on precision of data compared with financial accounting that does not

6. In financial accounting, certain rules and regulations must be followed on how financial statements must be presented
to the reader. In managerial accounting, no such restrictions generally apply because it is:
a. An entirely different field that need not observe the broad guidelines in financial accounting
b. Designed to provide management with non-financial information for decision-making.
c. Designed to provide accounting and other financial data to assist management in making business decisions.
d. A discipline that does not require preparation of financial statements

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BASIC CONSIDERATIONS IN MAS

7. The following characteristics refer to Financial Accounting except

a. Provides information to external users
b. Emphasizes on objective data
c. Has no externally imposed standards
d. Generate general-purpose financial statements

8. Managerial accounting differs from financial accounting in that financial accounting is

a. More oriented toward the future
b. Primarily concerned with external financial reporting
c. Concerned with non-quantitative information
d. Heavily involved with decision analysis and implementation of decisions

9. To distinguish between management accounting and financial accounting, the following statements are correct except
a. Management accounting, in view of its various integrated recipients should have a separate data recording and

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retrieval system from financial accounting
b. Financial accounting is bound to GAAP, and management accounting need not be in conformity with GAAP

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c. Financial accounting can be regarded as the process while management accounting can be regarded as the
product of that process
d. Management accounting output must be released on time so as not to erode its usefulness financial account

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output can still be useful even when delayed

10. The basic accounting records that are used to provide data for external financial reporting are also employed in

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management accounting. In combining and reporting these data to management, however, the accountant can relax the
verifiability constraint necessary in public financial reporting and instead prepare data, which, although not adequately
verifiable for external reporting, are more useful to management. This principle of management accounting considers the
following factors more important than others.
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a. Verifiability, objectivity and accuracy
b. Conservatism
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c. Relevance, flexibility and timeliness
d. Consistency and disclosure

11. The function of management that compares planned results against actual results is known as
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a. Planning
b. Directing and motivating
c. Controlling
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d. Decision making

12. The activities in a management system's control process can be grouped into four
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(1) Measurement of actual performance

(2) Deciding and implementing corrective action
(3) Determining standards of performance
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(4) Comparing actual performance versus standards and analyzing results

The above steps must be done in this sequence
a. 4, 3, 2, 1
b. 3, 1, 4, 2
c. 1, 3, 4, 2
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d. 3, 4, 1, 2

13. Which of the functions of management involves overseeing day-to-day activities?

a. Planning
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b. Directing and motivating

c. Controlling
d. Decision making

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14. People who make information-based decisions go through a series of fundamental steps in their decision-making
process
1. Evaluate alternatives
2. Identify constraints
3. Set objectives
4. Gather appropriate information
5. Choose the most acceptable alternative
6. Identify alternatives

The most desirable sequence in the above steps is

a. 4, 2, 3, 6, 1, 5 c. 3, 2, 4, 6, 1, 5
b. 2, 3, 4, 6, 1, 5 d. 3, 2, 4, 5, 1, 6

15. Which of the following types of management services is not directly related to accounting and finance functions?

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a. Cost analysis of major investment decisions
b. Long-range planning

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c. Design, installation or review of the budgetary system
d. Valuation of capital stock of companies for purposes of merger or sale.

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16. Which of the following types of management services is normally related to accounting and finance?
a. Management audit
b. Marketing forecasts

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c. Costs determination of alternatives in collective bargaining agreements.
d. Job evaluation and salary administration.

17. Management services of certified public accountants cover all of the following except:
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a. Project feasibility studies
b. Systems design, development and implementation
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c. Organizational development and planning
d. Audit, tax and legal services

18. Which of the following is not a characteristic of "Staff" authority?

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a. It gives support, advice, and service to line managers

b. It is exercised laterally or upward
c. It has the authority to command action or give orders to subordinates
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d. It is depicted as part of the organizational chart

19. Which of the following is not a Controller's function?

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a. In charge of planning and control

b. Protection of assets such as adequate insurance coverage, etc.
c. Interpreting and reporting on effects of external factors on the business
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d. Arranging short-term financing

20. Controllers are ordinarily not concerned with

a. Preparation of tax returns
b. Reporting to government
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c. Protection of assets
d. Investor relations

21. The treasury function is usually not concerned with

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a. Financial reporting
b. Short-term financing
c. Cash custody and banking
d. Credit extension and collection of bad debts

22. As businesses increase in complexity, the function of controllership has attained top-level recognition in the corporate
arena. Many areas related to finance and accounting has been identified with controllership. One area that becomes
controversial when included under the controller and viewed that such inclusion violates basic internal control is
a. Credit and collection
b. Internal auditing
c. Long range financial planning
d. Taxation and reporting to government agencies

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23. The chief management accountant called “controller" traditionally perform these functions except
a. The establishment and implementation of the financial planning process
b. Financial and management reporting and interpretation
c. Protection of company resources and economic evaluation
d. Preparation of proposals for product promotions

24. Controllership has attained special recognition in corporate management as business expands in complexity and
reach, and as the controller exerts influence for management to take organization’s goals. Controllership and
treasurership constitute corporate finance. These are among the controller’s traditional functions:
1. Tax management
2. Financial reporting and interpretation
3. Credit management
4. Sourcing and investing funds
5. Reporting to government regulatory agencies

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6. Risk management
7. Economic appraisal

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8. Planning for control

a. All eight items

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b. Items 1, 2, 5, 7, and 8 only
c. Items 1, 2, 3, 4, 5, 7, and 8 only
d. Items 2, 3, 5, 7, and 8 only

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25. Which of the following is not a qualification of a CPA in MAS practice?
a. Familiarity with the client's financial accounting and internal control systems
b. Analytical experience in problem solving
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c. Professional independence, objectivity, and integrity
d. Auditor of the client
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26. CPA’s in MAS practice must observe the ethical requirements of the accountancy profession except
a. independence
b. expression of opinion
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c. incompatible occupation
d. integrity and objectivity
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27. Integrity is an ethical requirement for all financial managers/management accountants. One aspect of integrity
requires
a. Performance of professional duties in accordance with applicable laws
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b. Avoidance of conflict of interest

c. Refraining from improper use of inside information
d. Maintenance of an appropriate level of professional competence
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28. Which ethical standard is most clearly violated if a financial manager/management accountant knows of a problem
that could mislead users but does nothing about it?
a. Competence
b. Legality
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c. Objectivity
d. Confidentiality

29. The following statements refer to competence of CPA's in management advisory services except
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a. In concept, it refers to the technical qualifications of the practitioner and his ability to supervise and evaluate the
quality of work of his staff assigned to the engagement so as to be responsible for the successful completion of
the project.
b. It is acquired by education, self-study, attendance to professional development courses, actual experience in
MAS work, and research
c. It is the ability to identify client needs, use analytical approach and process, apply technical knowledge,
communicate recommendations and assist in implementation
d. It must be retained in the rendition of MAS work and it can be impaired if the CPA performs decision-making for
the client or acts as employee of the client

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30. Which of the following statements is true?

a. Adequate training and experience in both the analytical approach and process in the particular undertaking are
requisites for the CPA to be involved in a management service engagement
b. A CPA with MBA and PhD degree is automatically qualified to render MAS.
c. Competence as a standard in the rendition of MAS by a CPA may be equated to having excellent scholarly
preparation to include the usual baccalaureate degree, an MBA and other post graduate studies.
d. A CPA by virtue of having the necessary academic preparation and by hurdling the licensure examinations
required to have a CPA license can readily render MAS to the public

31. As a consultant, the CPA practitioner should

a. Exercise administrative control over the client's staff to avoid unnecessary delays in implementation
b. Encourage dependence of client on the consultant’s staff so as to pinpoint clear responsibility in implementing
systems
c. Not take responsibility for making decisions and policy judgments in MAS engagements

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d. Conduct his engagement as if he is a member of the client's organization

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32. If a financial manager/management accountant has a problem in identifying unethical behavior or resolving an ethical
conflict, the first action he should normally take is to
a. Consult the board of directors

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b. Discuss the problem with his immediate superior
c. Notify the appropriate law enforcement agency
d. Resign from the company

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33. In which situation is a financial manager/management accountant permitted to communicate confidential information
to individuals or authorities outside the firm?
a. There is an ethical conflict and the board has refused to take action
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b. Such communication is legally prescribed
c. The financial manager/management accountant knowingly communicates the information indirectly through a
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subordinate
d. An officer at the financial manager/management accountant’s bank has requested information on a transaction
that could influence the firm's stock price
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34. During the course of an audit, the client’s controller asks your advice on how to revise the purchase journal so as to
reduce the amount of time his staff takes in posting. How should you respond?
a. Explain that under the Code of Ethics you cannot give advice on MAS areas at the same time you are doing an
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audit
b. Explain that under the IFAC Standards informal advice of this type is prohibited.
c. Respond as practicable at the moment and express the basis for your response so it will be accepted for what it
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is.
d. Respond and take full account for the consequences of the recommendation.
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35. Which of the following statements is not acceptable?

a. A CPA represents 3 major players in the industry in rationalizing the industry’s incentives before the
government public hearing.
b. A CPA shares with a new and substantial client information regarding another client belonging to the same
industry.
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c. A CPA provides consulting services to an existing audit client.

d. 2 major competing clients want to employ your services

36. The CPA who undertakes the performance of a MAS engagement should bear in mind that the results should
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a. Increase the client’s earnings capabilities

b. Be communicated in quantitative terms
c. Not be set forth as quantitative estimates
d. Not be explicitly or implicitly guaranteed

37. Which of the following statements is false?

a. CPA's provide MAS to go around the ethical constraints as mandated by the Accountancy Act.
b. Businesses hire management consultants to help define specific problems and develop solutions.
c. Included in the practice of consulting is the provision of confidential service in which the identity of the client is
concealed.
d. CPAs performing MAS maybe considered to be in the practice of management consulting.

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38. A letter written by the CPA and constitutes the CPA’s understanding of the work to be done in an MAS engagement
is a
a. Representation letter
b. Management letter
c. Letter of proposal
d. Comfort letter

39. The most important factor in selecting an engagement team is to assign consultants:
a. With prior experience in the client's industry.
b. With a combination of skills and experience in various business function areas as well as in different industries.
c. With the appropriate skills and experience and types of thinking to deal with the client's problems.
d. Who are likely to employ different approaches to problem solving such as highly imaginative thinking, or
unusual skill in the interpretation and use of financial and statistical data.

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40. It is one of the objectives of a final report
a. Recommend a future course of action, including, where appropriate, a listing of future projects in priority

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sequence
b. Agree on the role to be performed by the CPA consultant
c. To secure acceptance of the result of the study

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d. Agree on the role to be performed by the CPA consultant

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